US Financial problems ramping up - bank run?

[snow hope]

"US bank Bear Stearns has got emergency funding, in a move that raises fears that one of Wall Street's biggest names is on the verge of collapsing."

http://newsvote.bbc.co.uk/1/hi/business/7296678.stm

Looks like the downslope has just got a bit steeper....

[danza]

Thats not the half of it snow.

Rumours are rife that the next bank that will go under are Citibank, the worlds largest.

I was reading the evening standards business column on the way home and the main article basically stated that peak oil is real, its here and the potential for ever increasing oil prices is going to cause economic mayhem.

[JohnB]

Thats not the half of it snow.

Rumours are rife that the next bank that will go under are Citibank, the worlds largest.

Wot! You mean the one that owns Egg? The sooner I get my money out of the financial system and into a house and/or land the better .

[Totally_Baffled]

Here is a daft question:

Lets say the total loss exposure of Bear Stearns is $100 billion (for arguments sake)

What would happen if the Fed stepped in and paid off said $100 billion?

Would it cause inflation?

Dunno - isnt the $100 billion provided by the fed just replacing $100 billion of defaulted debt? Does this sum to zero?

Would it just buy time - I guess the bank would just lend it all out again at a fractional reserve of 9:1? (maybe this would cause the inflation?)

[Vortex]

Rumours are rife that the next bank that will go under are Citibank, the worlds largest.

OK, where are these rumours?

I can't find a sniff of this on the web.

[Moadib]

Rumours are rife that the next bank that will go under are Citibank, the worlds largest.

OK, where are these rumours?

I can't find a sniff of this on the web.

Have a search under "Daily Reckoning" or "Mish Shedlock". People have been talking about Citibank for a long time.

There are a lot of skeletons in a lot of closets...

[danza]

[quote]Have a search under "Daily Reckoning" or "Mish Shedlock". People have been talking about Citibank for a long time.

There are a lot of skeletons in a lot of closets...[/quote


Moadib, So youve been doing your reading then?


Well they are rumours, and as well as these blogs you refer to Ive also heard it from people that work inside other city banks.

But as I've said, they are just rumours.

I guess the truth will come out in time.

[MacG]

The collapse of a big bank would probably be the result of some kind of struggle between oligarchs, or a smokescreen to allow other manipulations. It's difficult to imagine how anyone would allow a bank collapse when money can be produced and infused by just touching a keyboard.

[skeptik]

What would happen if the Fed stepped in and paid off said $100 billion?

Would it cause inflation?

Dunno - isnt the $100 billion provided by the fed just replacing $100 billion of defaulted debt? Does this sum to zero?

It doesn't 'sum to zero' as the FED is then $100 billion down on it's balance sheet. The FED does not 'just' print money. It currently only has about $400 billion left to play with.

Then there's the 'moral hazard' aspect - bad management is implicitly rewarded, and every other bank in trouble would expect the same treatment. The FED doesnt have the resources to bail out the eentire US financial system.

[Totally_Baffled]

What would happen if the Fed stepped in and paid off said $100 billion?

Would it cause inflation?

Dunno - isnt the $100 billion provided by the fed just replacing $100 billion of defaulted debt? Does this sum to zero?

It doesn't 'sum to zero' as the FED is then $100 billion down on it's balance sheet. The FED does not 'just' print money. It currently only has about $400 billion left to play with.

Then there's the 'moral hazard' aspect - bad management is implicitly rewarded, and every other bank in trouble would expect the same treatment. The FED doesnt have the resources to bail out the eentire US financial system.

OK Understood.

Where does the $400 billion come from?

Presumably it doesnt come from the money markets or the tax payer?

What is the source of this money? Who decides the amount? and what are the implications if this amount is increased?

Take your point on the "rewarding bad practice" issue.

[Vortex]

And whilst we are at it, where does UK 'government borrowing' come from?

The UK banks i.e. us?

Or from foreign banks, the IMF, or foreign governments?

[MacG]

What would happen if the Fed stepped in and paid off said $100 billion?

Would it cause inflation?

Dunno - isnt the $100 billion provided by the fed just replacing $100 billion of defaulted debt? Does this sum to zero?

It doesn't 'sum to zero' as the FED is then $100 billion down on it's balance sheet. The FED does not 'just' print money. It currently only has about $400 billion left to play with.

Then there's the 'moral hazard' aspect - bad management is implicitly rewarded, and every other bank in trouble would expect the same treatment. The FED doesnt have the resources to bail out the eentire US financial system.

They have only $400 billion which are supposed to be "sterile", or non-inflationary to use, but I promise you that the Gov and treasury can issue unlimited amounts of bonds, which the Fed then can "buy".

[RenewableCandy]

So MacG does that mean, "we recon we can issue another about $400Bn without disturbing the balance (and causing inflation) too much, but beyond that it's a bit risky..."?

[MacG]

So MacG does that mean, "we recon we can issue another about $400Bn without disturbing the balance (and causing inflation) too much, but beyond that it's a bit risky..."?

That's what they say, and maybe even what they think, but when looking around, inflation is taking off already.

I don't think anyone in power have anything resembling a long-term plan, and definitely not some grand conspiracy, they manage things on a day-to-day basis.

It's very difficult to imagine any other outcome than inflation based on this.

Everyone who has any influence will opt for the easiest solution to get trough the next day, and maybe next week, and that solution is to issue more money.

The system is just to complex, economic theories are just to faulty and humans are just to limited, so there is no plan for "rebuilding" anything, like industrial capacity in the US.

A bunch of people are manning various controls and levers, making all efforts to pretend that they control things, but in reality there is nobody at the helm. There might not even be a helm.

[RenewableCandy]

...there is nobody at the helm. There might not even be a helm.

That is scary...all the more so because I've sort of been wondering that for a while, but wouldn't really like to believe it!